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How well do you understand your current financial landscape? 

A recent study by Credit Karma found that roughly half of Americans (51%) don’t know how to calculate their net worth, which is one of the more straightforward ways to get a bird’s eye view of where you stand financially. Luckily, calculating your net worth is easier than you might think. 

Here’s a quick rundown on how to calculate, grow, and protect your net worth for a huge financial impact both now and well into the future.

What is Net Worth? 

Net worth is the value of everything you own (cash, savings, equity like your house) minus the money you owe (loans, a mortgage). It gives you the big picture of how you’re doing financially and any areas that could be strengthened moving into the future. 

Net worth can be determined for both individuals and companies. Taking a deeper look at the net worth of a company is a great starting point when considering an investment. However, the most practical way to get started is to evaluate your personal net worth. 

The goal should be to minimize your liabilities (the money you owe) in favor of assets you own.

With that in mind, let’s take a closer look at how to evaluate your financial health by calculating your net worth. 

Step-by-Step Guide to Calculating Your Net Worth

To get started, compile a list of everything you own and owe. This might mean combing through bank statements, checking the balances on loans, and evaluating your retirement savings accounts. Nothing is too small to be considered when tallying up your net worth. 

First, look at your list of assets (the things you own). This can include cash reserves in your checking or savings accounts, investments, real estate, or personal property you may own like a car or other major investments. 

Once this is done, calculate your liabilities (the money you owe) on things like loans, mortgages, and credit card debt. 

The formula for net worth is simple:

Total Assets – Total Liabilities = Net Worth

Net Worth Example Calculation

To give you a basic example, let’s say that you make a list of your assets and find: 

  • Checking account: $2,000
  • Savings account: $7,000
  • 401k: $12,000
  • Car: $15,000
  • House: $250,000

That’s all balanced by your debts and liabilities:

  • Mortgage: $175,000
  • Student loan: $10,000
  • Credit card debt: $500

Your equation would look something like this: 

Total Assets ($286,000) – Total Liabilities ($185,500) = Net Worth ($100,500)

With this number in mind, let’s get to the exciting part: how can you grow that number and achieve the life and goals you’re dreaming about?

How to Grow & Protect Your Net Worth

Hoping to upgrade to a larger home, welcome a new baby to the family, or go on that dream vacation you deserve? Growing your net worth can give you a bit more wiggle room when it comes to achieving financial stability and a comfortable lifestyle.

Growing your net worth requires some financial planning and an eye for the future. Smart saving and investment strategies along with paying down the debts you owe can help bolster your net worth. 

Here are some top tips to get started:

Try Investing

Investing” might sound like a strategy reserved for the ultra-rich, but there are plenty of investment opportunities available to the general public. Everyone is Worthy of investing!

Instead of stashing all your excess cash in a savings account where it won’t earn much interest, a few key investments like bonds, CDs, and 401k contributions can help you build up your net worth over time. Otherwise, your money will actually lose value over time as inflation outpaces what you earn back in interest

Bonds come with a lot of fantastic benefits that make them appealing to first-time and seasoned investors alike. They’re generally considered a reliable type of investment and can provide a steady stream of interest payments over time.

There are many types of bonds, but it’s only $10 to get started with Worthy Bonds, and you’ll earn 7% Fixed APY on your investment. Invest in some bonds, hold onto them for a few years, and enjoy watching interest payments come through! When you’re ready to make a larger purchase, you can sell the bonds to get back your initial investment.

Prioritize a Long-Term Plan

Growing your net worth generally takes time. For most investment strategies, it’s best to plan for the long haul if you want to get the best returns.

Most bonds and CDs have a set maturity date, and you’ll face fees or penalties if you want to cash them in early–if you can cash them in at all. Plan around your current expenses and don’t invest every penny you have! Keep some cash on hand so you can afford to leave your investment untouched and growing. 

Worthy Bonds don’t have any penalties or fees, so you can sell them at any time. But if you do sell them right away, you won’t get to enjoy the main benefit: interest payments earned over time. If you want your Worthy bonds to work hard for you, it’s best to hold them for as long as possible.

Long-term planning also applies to any stock investments you have, like a 401k or IRA. If you have a long time to realize your return on investment, you can afford to let those riskier investments ride the ups and downs of the market and grow steadily over time.

Diversify Your Portfolio

Diversification gives you options when it comes to your spending. Instead of putting all your eggs in one basket, it involves holding a variety of different asset classes: cash, bonds, stocks, and so on. 

Investing in a 401k or IRA is fantastic for your long-term retirement plan, but since those accounts invest in a lot of stocks, they’re often at the whim of the stock market. If you take distributions when the market is in poor shape, you’ll lock in losses when your money could have gone a lot farther.

Compared to other investment vehicles, bonds are more reliable and predictable than stocks or mutual funds. They can provide steady interest payments and add stability to your net worth even if your 401k is fluctuating with the market. 

With a diversified portfolio, you can pull from your emergency cash fund or sell a few Worthy bonds to cover a surprise expense. This protects your net worth and helps it grow simultaneously.

Look at Interest Rates

Depending on if we’re talking about assets or liabilities, interest rates can be a boon or a major pain to your net worth. Either way, it’s worth taking a close look at the numbers and prioritizing your financial plan accordingly. 

Part of improving your net worth is reducing your debts and liabilities. What interest rates are you currently paying on your loans? Student loans tend to hold a lower interest rate, while credit cards can be extremely expensive to hold a balance. It will take some budgeting and planning, but make an effort to pay down your debts where the interest rates are highest.

On a more positive note, interest rates can also help your net worth grow. If you’re shopping around for bonds to invest in, don’t just jump for the first option you find. Look for high-yield bonds that give back more on your investment. 

Think about it this way: if you’re paying 5% interest on your loan while your savings account only offers a 0.5% return on savings, you’re losing money every day! On the other hand, getting a 7% return on a Worthy Bond means that investment can grow.

You’re Worthy of a Better Net Worth!

Worthy Bonds are an attractive investment option for anyone looking to diversify their portfolio and balance the risk of their other assets. These demand bonds can be sold at any time, making them more liquid and easier to access. With a 7% Fixed APY return, our SEC-qualified bonds are a good way to stash your cash.

We believe in a people-first approach to investing! Proceeds from Worthy bonds are invested in community real estate projects, so you can feel good about supporting Main Street instead of Wall Street.

Ready to put your dollars to work and grow your net worth? Get started today and start building up your financial future.

Post by Team Worthy
February 15, 2024